Taxation For Decision Makers 2012 Edition Shirley Dennis Escoffier - Solutions

39. Juan and Celina are married, file a joint return, and have AGI of $148,000.On April 1, 2010 they purchased their first home for $118,000 and claimed the homebuyer credit on their 2010 tax return.a. If they sold their home on April 15, 2011 for $128,000, how does this affect the first-time
38. Roland worked for Sorbonne Company for the first four months of 2011 and earned $36,000 from which his employer withheld $2,034 for payroll taxes. In May, Roland accepted a job with Lyon Company. During the last eight months of the year, Roland earned $84,000 from which Lyon withheld$4,746 for
37. June is a single individual with AGI of $45,000. June has a five-year-old son who is in day care while she works.a. How much can she claim for the dependent care credit if she spends$5,000 for child care during the year?b. How much can she claim for the dependent care credit if she spends$2,000
36. Doris is a single individual with modified AGI of $52,000. During the year, she pays $11,000 for tuition for a master’s in taxation program. How much can Doris claim for the lifetime learning credit?
35. Greg and Barbara, a married couple with an AGI of $80,000, have three children who are full-time college students. They pay $6,000 for tuition annually for each child. They have one son who is a sophomore in college and another son who is a senior. Their daughter is a graduate student.How much
34. Cindy files as head of household and has three dependent children ages 12, 14, and 16. Her AGI is $80,000. How much can Cindy claim for the child tax credit?
33. Jennifer, a single individual, has a $20,000 loss from an S corporation,$11,000 salary from a part-time job, and $2,000 of interest income. Her itemized deductions include $4,000 mortgage interest, $2,800 in taxes, and$500 in charitable contributions. Compute Jennifer’s net operating loss.
32. Mark and Patricia report adjusted gross income of $300,500 and itemized deductions of $64,000 (mortgage interest, taxes, and charitable contributions).They file a joint income tax return and claim their four children as dependents. What is their taxable income for 2011?
31. Arnold, a single individual, has adjusted gross income of $65,000 in the current year. Arnold donates the following items to his favorite qualified charities:• $5,000 cash to the athletic department booster club at State University.This contribution gives him the right to purchase preferred
30. Pablo and Adriana, a married couple who file a joint return, purchase a$190,000 home by paying $38,000 cash down and taking a mortgage for the balance of the purchase price. The mortgage company charges them$3,000 in points for originating the loan that they pay at closing. They pay$7,000 in
29. Edward, a single individual with a 25 percent marginal tax rate, incurs interest expense of $10,000 attributable to his investment in stocks and bonds. His gross investment income is $6,200 ($1,000 of which is from long-term capital gains and dividend income), and his adjusted gross income,
28. In 2011, Rebecca and Gregory, a married couple filing a joint return, reported adjusted gross income of $70,000 and total allowable itemized deductions of $12,000, which included state income taxes paid of $3,100.They received a $900 refund of state income taxes in April 2012. How much of the
27. Daniel’s adjusted gross income is $90,000. During the year he incurred$14,000 of medical expenses and was reimbursed for $3,000 of these expenses. What is his allowable medical expense deduction if he itemizes?
26. What is the total deduction for personal and dependency exemptions for the following taxpayers in 2011?a. Married filing jointly with three dependentsb. Single with no dependents
25. Michael’s adjusted gross income for 2011 is $90,000. He is age 30 and single with no dependents. What is Michael’s taxable income?
24. Scott is 15 years old and qualifies as a dependent on his parents’ tax return. During 2011 he earns $2,500 from a part-time job and also receives $800 of dividend income on stock given to him by his aunt. What is Scott’s taxable income?
23. Lynn is an unmarried individual who has a dependent grandchild who lives with her. Lynn is age 66. What is Lynn’s standard deduction for 2011?
22. Harry and Silvia, a married couple, are both age 67 and legally blind.What is their standard deduction for 2011?
21. Joseph provides $12,000 of support for his mother, Miriam, who lives in his house. Miriam is a U.S. citizen and single. Miriam’s only income is Social Security of $5,000 and taxable pension income of $4,000. Miriam uses the Social Security income for support but puts all of the pension income
20. Ashley is single and owns a sole proprietorship. She pays an annual premium of $2,600 for a high-deductible medical policy for herself with a$2,300 deductible. How much can Ashley set aside in an HSA? How much can she deduct for AGI?
19. Cecilia is married and files a joint return with her husband, Steve. They have modified adjusted gross income of $130,000. Cecilia paid $2,700 in student loan interest this year. What is her deduction for the interest paid?
18. What is the purpose of the alternative minimum tax for an individual?
17. What is the difference between a refundable and a nonrefundable credit?Provide examples of each.
16. What is the difference between a tax credit and a tax deduction?
15. If an individual has a negative taxable income does that mean that he or she has an NOL? Explain.
14. Collin pledged a $5,000 gift to his church for its building fund. He has 125 shares of stock that he purchased six years ago for $100 per share. It is currently worth $40 per share. Collin wants to give the stock to the church to satisfy his pledge. What advice do you have for Collin?
13. What is the overall charitable contribution deduction limitation?
12. What is qualified residence interest?
11. What itemized deductions must exceed a basic minimum (floor) before the taxpayer’s taxable income is reduced for the excess amounts expended?
10. When would a taxpayer itemize his or her deductions?
9. Explain the gross income test for the dependency deduction.
8. What is the purpose of a multiple support agreement?
7. Who are qualifying relatives for purposes of the dependency exemption?Which relatives do not qualify?
6. What is the purpose of the abandoned spouse provision?
5. Distinguish the personal exemption from the dependency exemption.
4. What are the requirements to file as head of household?
3. What are the filing statuses available to unmarried taxpayers? Which statuses are available only to married taxpayers?
2. What is the purpose of adjusted gross income?
1. Briefly explain two deductions that an individual has for adjusted gross income.
5. Donna, a single individual with no dependents, reports AGI of $100,000.She also reports the following itemized deductions:Medical expenses in excess of 7.5% AGI $ 1,000 Home acquisition mortgage interest 10,000 Property taxes on principal residence 3,000 State income taxes 6,000 Qualified
4. Lynn and Dave, a married couple with a dependent child age 16, have AGI of $300,000 in 2011 and report the following itemized deductions before deducting any floors that may apply:Home mortgage interest $40,000 Taxes 13,000 Charitable contributions 15,000 Medical expenses 11,000 Miscellaneous
3. George and Laura, a married couple with an adjusted gross income of$100,000, made the following contributions to qualified charitable organizations:• Cash of $8,000 given to State University.• Used personal clothing donated to Goodwill. The clothing was acquired two years ago at a cost of
2. Maria, age 12, is claimed as a dependent on her parents’ tax return. She has gross income consisting solely of taxable dividends of $2,800. What is Maria’s taxable income?a. $2,800b. $1,850c. $1,800d. $0
1. Tony and Anita are married and file a joint tax return. They provide more than half the support for their daughter (age 16) who had gross income of $4,000 and their nephew (Tony’s deceased brother’s child who is 17 and lives with them) who had gross income of $3,800. Both the daughter and
63. Clare and Cora have been making wedding cakes in their homes for several years. The Health Department just learned about this and now requires them to shut down or find a commercial kitchen that can be subject to the proper inspections. Clare and Cora located a suitable small restaurant they
62. Prior to BJ Corporation’s year-end, its sole shareholder comes to you for advice. BJ is an established S corporation that was profitable until two years ago when the economy faltered. Due to distributions and losses passed through in prior years, the shareholder’s basis in the S corporation
61. Cynthia needs your advice regarding which form of business entity to choose for her new business. She expects the new business will have losses of approximately $80,000 in each of the first two years but anticipates profits that will grow steadily thereafter. Cynthia has no cash to contribute
60. An S corporation shareholder is currently in the 28 percent tax bracket.His S corporation is going to pass a very large loss through to him that would otherwise offset other income, except for the fact that he lacks sufficient stock basis to absorb the loss. The shareholder is coming to your
59. Go to the IRS Web site (www.irs.gov) and locate the form that a corporation uses to make an S election and its related instructions. Summarize the information required on the form. Do the instructions include information on how to obtain an extension of time for filing the S election? If so,
58. In addition to the federal income tax, an entity is subject to the laws of the state in which it is organized. Use the Internet to locate sources of tax law that govern the tax treatment of partnerships, LLCs, and S corporations for your state. Write a brief description regarding how each of
57. Go to www.taxsites.com/state-links.html and locate your state. Find and read your state’s filing requirements for forming an LLC and write a oneparagraph summary of these requirements. Does your state recognize a single member LLC?
56. Refer to the information in problems 22 and 23.a. Go to the IRS Web site (www.irs.gov) and print out the first page and Schedule K for Form 1065. Use the information in problem 22 to complete these two forms to the extent possible with the information given.b. Go the IRS Web site (www.irs.gov)
55. Go to the IRS Web site (www.irs.gov) and print out copies of Schedule C for Form 1040, Schedule SE, Form 4562, Form 4797, and the first page of Form 1040. Using the information in comprehensive problem 41, complete these schedules and forms to the extent possible from the information given.
54. The partners of JPG Partnership want to change the form of entity from a partnership to a corporation. The corporation can be formed in several ways: The partnership can distribute the assets to the partners who then contribute the assets to the corporation. The partnership can transfer the
53. Roberta Wynn has been a partner in the Cato Partnership for a number of years. With the permission of the other partners, she sells her partnership interest to a third party. At the time of sale, her basis in her partnership is only $100. For the portion of the year to the date of sale, she is
52. Locate a recent appellate court case that has reversed a Tax Court decision regarding a partnership or S corporation tax issue.a. Summarize the facts, issues, and conclusions of the case.b. Explain why the appellate court reversed the Tax Court.c. Explain the impact this decision has on tax
51. Carol and her husband own 35 percent each of a land development partnership.Carol owns a piece of land purchased six years ago for $60,000 that has been declining in value. The partnership wants to buy the land for development but is only willing to pay $40,000.
49. ABCD partnership, a calendar-year partnership, has four owners: A owns a 20 percent interest; B a 25 percent interest; C a 40 percent interest; and D the remaining 15 percent interest. Some of the partners have been having difficulty working with each other, so, with partnership agreement, D
48. The Gemini Corporation, an S corporation, wants to expand its lines of business. To do so quickly, it acquires 85 percent of the stock of Trojan Corporation, a regular C corporation.
47. Craig is a 20 percent shareholder in an S corporation and works an average of 20 hours per week in the business. His wife, Lynn, is a full-time employee of the corporation. The corporation provides her fully paid health and life insurance benefits for herself, Craig, and their children.
46. Compare the treatment of distributions of depreciated and appreciated property by an S corporation to that of a partnership.
45. Why do you think an S corporation is limited to having common stock with no differences other than voting rights?
44. Why do you think services are excluded from the definition of property when a partner receives a partnership interest in exchange for property?
43. Why do you think Congress passed the law that allows an LLC to elect to be treated as a corporation or a partnership?
42. What do you believe led to the conclusion that a sole proprietorship should report its results on the owner’s tax return?
41. Comprehensive Problem. On March 15, 2009, James Smith formed a business to rent and service vending machines providing healthy snack alternatives and juices to the local middle and high schools. He operates the business as a sole proprietorship from his home, turning the den into an office from
40. The operating results for Peep Corporation, an S corporation, for last year were as follows:Revenues Gross sales $2,000,000 Tax-exempt bond interest 2,000 Dividend income 8,000 Section 1231 gain (land) 10,000 Expenses Cost of goods sold $900,000 Salaries 600,000 Rent 200,000 Utilities 60,000
39. PA Corporation, an S corporation, has two equal shareholders, P and A.Prior to the end of the current year, PA decides to liquidate and sell its three remaining assets and distribute the cash received to P and A. Asset 1 has a basis of $10,000 and is sold for $6,000. Asset 2 has a basis of
38. The Jane Corporation, an S corporation, makes several property distributions to its two equal shareholders, A and B, during the year. The distributions are as follows:A B Cash $5,000 $5,000 Land (Basis=$5,000) $10,000(FMV)Equipment (Basis=$15,000) $10,000(FMV)At the beginning of the year, the
37. Crow Corporation, an S corporation from the date of its incorporation, is in the process of liquidating. During the current year, it reports gross receipts of only $40,000; it has passive investment income of $25,000 from the money it invested after the sale of a large portion of its operating
36. During the current year, Biggie, Inc., a delivery company operating as an S corporation, reported the following results from operations:Revenue $280,000 Salaries 130,000 Truck expense 30,000 Taxes 18,000 Section 1231 loss 8,000 Traffic fines 1,200 Interest on truck loans 2,000 Interest income
35. At the beginning of year 1, Lisa and Marie were equal shareholders in LM Corporation, an S corporation. On April 30, year 1, Lisa sold half of her interest to Shelley. On August 8, year 1, Marie sold her entire interest to George. On December 31, year 1, the corporation reported net income
34. Is there any tax advantage to a 100 percent shareholder-employee of an S corporation compared to a shareholder-employee of a C corporation under the following circumstances: shareholder-employee salary is$75,000; the corporate income before the $75,000 salary and any related employment expense
33. Charles owns a 25 percent interest in Cal Corporation, an S corporation.The corporation has run into some difficulties recently and Charles lent it$10,000. At the beginning of the year, Charles’s basis in his stock was$16,000.a. What is Charles’s basis in his stock and debt at the end of
32. Maria, a 25 percent partner in MARS Partnership, needs a distribution from the partnership for some unexpected bills. The partnership, however, does not have any extra cash to distribute. It will distribute land to Maria that has a value of $27,000 and a basis to the partnership of
30. In year 1, Sally invested $45,000 for a 10 percent interest in a limited partnership.This is Sally’s only passive investment. The limited partnership has $100,000 of nonrecourse debt. (The debt is not secured by real property.)At the end of years 1 through 5, the partnership passed income and
29. Luis and Jennifer formed the JL Partnership as equal partners. Each partner contributed cash and property with a value of $80,000 for partnership operations. As a result of these contributions, Luis had a basis of $80,000 and Jennifer a basis of $60,000 in their partnership interests. At the
28. CCC Partnership borrowed $100,000 on a five-year recourse note from a local bank. It also purchased land for $60,000, putting $10,000 down and signing a qualified nonrecourse loan secured by the land for the balance.The partners’ interests in partnership profits and losses are as
27. Explain the difference in recourse and nonrecourse liabilities when distinguishing between general and limited partners. Assume the partnership has $100,000 of recourse liabilities and $60,000 of nonrecourse liabilities.It has one general partner, Matt, who has a 20 percent interest in income
26. Refer to the information in the preceding problem. If the partnership sells the land for $27,000 after holding it for three years, what are the tax consequences to Alpha, Beta, and Gamma?
25. Alpha, Beta, and Gamma form the ABG partnership by transferring the following to the partnership:Alpha $10,000 cash and machinery valued at $20,000 with a basis of $15,000.Beta Land valued at $30,000 with a basis of $35,000.Gamma Cash of $20,000 and services valued at $10,000.a. Determine the
24. Bob is a 50 percent owner of Barco Enterprises. During 2011, Barco earned $80,000 in net income after subtracting Bob’s $50,000 salary. Bob also withdrew $20,000 from Barco during the year. Bob would like to know the amount of the FICA taxes and by whom they would be paid ifa. Barco is a
23. Refer to the information in the preceding problem, except that George and Georgenne are equal shareholders in an S corporation.a. What is the net income, excluding separately stated items, that each shareholder is required to report at the end of the year?b. How is each of the separately stated
22. George and Georgenne formed the GG Partnership as equal partners. Each partner contributed cash and property with a value of $100,000 for partnership operations. As a result of these contributions, George had a basis of $80,000 and Georgenne a basis of $60,000 in their partnership interests.At
21. Jim and Angie form the JAZ Partnership with Zoe by contributing $75,000 each to partnership equity. Zoe, the third partner, contributes property with a basis of $50,000 and fair market value of $75,000. The three are equal partners in the partnership.a. Determine the tax consequences to Zoe for
20. Julie transferred a personal-use computer to her sole proprietorship. The computer originally cost her $3,000. At the date of transfer, the computer had a fair market value of $1,000. Explain how both Julie and the sole proprietorship will treat this for tax purposes.
19. Maggie Brown works for a clipping service from her home. She spends three to four hours per day reading newspaper clippings and making notes for the clipping service. During the year, she earned $9,300 from the service. She had automobile expense of $300, phone expense of $100, and child care
18. Refer to the information in problem 16, except that John operates Mason Enterprises as an S corporation. How would John report the income and loss items from S corporation operations?
17. Refer to the information in the preceding problem, except that John and his wife Mary are equal partners in Mason Enterprises, which operates as a partnership. How would they report the income and loss items from partnership operations?
16. John Mason operates a consulting business, Mason Enterprises, as a sole proprietorship. He had to transfer $100,000 of stocks and securities into Mason Enterprise’s name to show financial viability for the business.During the current year, the business had the following income and expenses
15. What types of taxes may an S corporation have to pay and under what circumstances?
14. What is the purpose of the accumulated adjustments account if the S corporation has always been an S corporation?
13. Why do the basis and at-risk rules usually prevent the same amount of losses from passing through to shareholders of S corporations?
12. What is a terminating event in relation to an S corporation?
11. What is the difference between a prospective S election and a retroactive S election?
10. What are the corporate and shareholder restrictions on making an S corporation election?
9. How is income allocated to S corporation shareholders? Develop an example to illustrate this procedure.
8. Why are partnerships and S corporations required to separately state certain items on their Schedule K rather than combining these items with the organization’s operating profit or loss? Provide examples of the items that must be separately stated.
7. Although partners can generally deduct their share of losses from a partnership, what three things can limit their ability to deduct these losses on their current year’s tax return?
6. Do liabilities of an S corporation affect the basis of a shareholder’s stock in the same manner as partnership liabilities affect the basis of a partner’s partnership interest? Explain.

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Taxation For Decision Makers 2012 Edition Shirley Dennis Escoffier - Solutions

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